Returns on Capital Paint A Bright Future For Tilaknagar Industries (NSE:TI)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Tilaknagar Industries (NSE:TI) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Tilaknagar Industries:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.23 = ₹1.8b ÷ (₹10b - ₹2.6b) (Based on the trailing twelve months to June 2024).

Therefore, Tilaknagar Industries has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

View our latest analysis for Tilaknagar Industries

Above you can see how the current ROCE for Tilaknagar Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Tilaknagar Industries .

What Can We Tell From Tilaknagar Industries' ROCE Trend?

Tilaknagar Industries has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 23% on its capital. While returns have increased, the amount of capital employed by Tilaknagar Industries has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

The Key Takeaway

In summary, we're delighted to see that Tilaknagar Industries has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 2,301% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Tilaknagar Industries can keep these trends up, it could have a bright future ahead.

While Tilaknagar Industries looks impressive, no company is worth an infinite price. The intrinsic value infographic for TI helps visualize whether it is currently trading for a fair price.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.